Aerospace and defence engineering produces qualifying R&D at every tier of the supply chain, from primes to specialist component houses. The technical case is usually strong. The harder questions in this sector are contractual: on a contracted programme, who owns the claim, and how do you document classified or export-controlled work without compromising it?
What counts as qualifying R&D in aerospace and defence?
Work seeking an advance through uncertainty a competent professional could not readily resolve. At concept level, that commonly includes:
- Airframe and structures work with novel materials, joining methods or weight targets beyond established practice.
- Propulsion, fuel systems and thermal management development.
- Avionics, sensors and mission systems where integration behaviour cannot be predicted from published knowledge.
- Development driven by certification standards, where meeting the standard with a new architecture or material is itself technologically uncertain.
- Manufacturing process development for tight-tolerance or low-volume aerospace parts.
Certification effort alone is not automatically R&D. Where the route to compliance is understood and the work is verification, it falls outside the definition; where compliance demands resolving new technical uncertainty, it can sit inside it. The boundary needs drawing honestly, project by project.
Who claims on a contracted programme?
This is the sector’s defining question. Under the current rules, the customer claims only where it intended or contemplated the specific R&D when the contract was made; otherwise the contractor claims in its own right. For prime and subcontractor chains on government programmes, the analysis runs down the chain contract by contract, and contractors serving customers that are outside UK tax can often claim in their own right. Contract wording decides real money here: our contracted-out R&D guide explains the test, and payments to unconnected subcontractors qualify at 65% for the paying company.
Which scheme applies?
Most established aerospace and defence businesses are profitable and claim the merged scheme: a 20% expenditure credit worth £15,000 net per £100,000 of qualifying spend at the 25% corporation tax rate. Loss-making, R&D-intensive SMEs, common among newer defence-tech companies, should check ERIS, worth up to £26,970 per £100,000. The claim value calculator gives an estimate for either position.
Sector points worth knowing
- Classified and export-controlled work can be claimed without disclosing controlled detail: the technical narrative describes the uncertainty and the approach at a level cleared for release, and we prepare reports with that constraint in mind.
- Long programmes spanning accounting periods need consistent project boundaries year to year, which is where HMRC enquiries tend to probe.
- Test articles and development hardware consumed in the programme can qualify as consumables where they are not sold.
Talk it through with a chartered adviser
If your company engineers for flight or defence, we will give you a straight view on eligibility and on who owns the claim in your contract chain. Call 0330 223 4 223 or send us a message.
Written by Matthew Jones ACA CTA. Last reviewed July 2026.